24 January 2009
By John Donovan of royaldutchshellplc.com
The Minerals Management Service (MMS) of the U.S. Department of The Interior (DOI) and the Office of Inspector General initiated an investigation in 2006 after receiving allegations from a confidential source (CS) that improprieties were occurring within the MMS Royalty in Kind Program (RIK).
A number of oil companies are indentified in the findings of the investigation. The following extracts focusing on the involvement of companies within the Royal Dutch Shell Group, are taken directly from the official report.
Although several MMS employees are named in the report as accepting inappropriate gifts from Shell, the extracts deal mainly with the interactions between Shell and two MMS employees – Stacy Leyshon (employed by MMS since 1986) and Crystel Edler, an MMS employee since 1989.
Perhaps Richard Wiseman, Shellâ€™s Chief Ethical & Compliance Officer, would care to explain how the behaviour revealed in the report, including Shell yet again playing fast and loose with confidential information belonging to a third party company, is compatible with Shellâ€™s claimed business principles? Is it not time that Shell admitted that the principles are nothing but a PR sham?
In the hard commercial world, Shell is, as always, prepared to do whatever it takes to meet its objectives, whether in the USA (bribery and corruption), Nigeria (fuelling corruption and violence, with no end to the gas flaring), the North Sea (production and profit before offshore worker lives) or in Russia (bribery and corruption on the Sakhalin-2 project).
The CS specifically alleged that RIK marketers had developed inappropriate relationships with representatives of oil companies doing business with the U.S. Department of the Interior (DOI).
The CS asserted that the inappropriate relationships included RIK employees frequently attending oil and gas industry social functions and accepting gifts from company representatives.
Our investigation confirmed that between January 1,2002, and July 2006, 19 RIK marketers and other RIK employees- approximately 1/3 of the entire RIK staff – had socialized with, and had received a wide array of gifts from, oil and gas companies with whom the employees were conducting official business.
Agent’s Note: During the course of our investigation, we informed Secretary Dirk Kempthorne and Assistant Secretary for Land and Minerals Management Stephen Allred of the improper behavior we were uncovering within the RIK Program. The Secretary immediately directed Assistant Secretary Allred to transfer RIK employees Greg Smith, Crystel Edler, and Richard Fantel out of the RIK Program after we specifically identified their personal behavior as particularly troubling. Stacy Leyshon had previously been transferred out of the RIK Program.
Between October 2007 and May 2008, we undertook extensive efforts to interview five Chevron employees. Despite these efforts, these employees ultimately declined to be interviewed. Additionally, a former Shell employee declined to be interviewed by DOl-DIG agents.
In e-mails we retrieved from computer hard drives and network servers, we found numerous indications that many of the events that RIK employees attended with industry officials were purely social. For instance, e-mail from Shell Pipeline Company representative to RIK employee Crystel Edler, regarding attending “tailgating festivities” at a Houston Texans game, stated, ”You’re invited have you and the girls meet at my place at 6am for bubble baths and final prep. Just kiddingâ€¦”
The Shell Pipeline Company representative’s previous e-mail inviting people to the event was laden with sexual innuendo such as, “We’ve always provided the patrons with beer on demand, but the ever-depleting supplies have dwindled beer storage to dangerously low volumes on occasion…. Although it’s a given that the horsemen will indeed ‘bring the meat to the table.’
Agent’s Note: The Shell Pipeline Company representative declined to be interviewed.
We determined Chevron, Shell, Gary Williams Energy Corporation (GWEC), and Hess Corporation (Hess) provided gifts to RIK employees. Each of these four companies maintained a business relationship with RIK and is therefore considered a “prohibited source.” Shell and Chevron conducted business with RIK as both producers on leases where MMS took royalties in kind and as purchasers of RIK oil.
Our review of Shell representatives’ expense reports and other documentation disclosed that Leyshon received approximately 12 gifts from Shell between 2002 and 2006. The expense report entries reflect mostly the purchase of meals and drinks. In addition, interviews and record reviews disclosed that Leyshon attended several of Shell’s customer appreciation dinners and customer appreciation outings.
Leyshon acknowledged that she accepted meals and drinks from Shell representatives but could not estimate how much or how often. She recalled that she also went to Shell’s customer appreciation dinners two or three times, where she accepted meals, a silver serving dish, and a dip bowl. She claimed that she donated the silver dish and the dip bowl to charity.
She also admitted to attending Shell’s customer appreciation outings in Colorado in 2002, 2004, 2005, and 2006.
In 2002, Shell provided Leyshon with lodging and golf in Keystone, CO. Leyshon stated that she did not reimburse Shell for her lodging expenses. She explained that she and Crystel Edler, who also attended this same event, had accepted lodging from Shell but had bought breakfast for their Shell hosts the next morning. According to Leyshon, by providing breakfast, she and Edler had provided an item of “equal value” for the cost of the lodging.
Leyshon recalled that she and Edler had not originally planned to spend the night in lodging provided by Shell but had planned to stay at a hotel room she and Edler had reserved. She explained that after she and Edler consumed “some alcohol,” a Shell employee suggested that it would be unsafe for them to drive to their hotel. Leyshon said they then stayed at Shell’s lodging.
In 2004, Shell provided Leyshon with lodging and paid for her ski costs in Keystone, CO.
Leyshon said she did not reimburse Shell for these expenses but claimed to apply the “reciprocal” or “equal value” logic by providing “a bunch of alcohol” valued at approximately $60 for those in attendance.
In 2005, Leyshon stayed in lodging in Breckenridge, CO, paid for by Shell but claimed her own skiing costs and provided bank statements showing she paid for her lift ticket.
Finally, in 2006, Leyshon again skied with Shell employees in Breckenridge, CO, but claimed that she paid her own skiing and did not spend the night. She stated that she attended dinner with Shell employees while she was in Breckenridge but could not remember who paid.
Leyshon also told investigators that she had intimate relationships with two oil company representatives. Specifically, Leyshon said she had a sexual relationship with an employee of a company that had “Pacific” in its name. According to Leyshon, “Pacific” did not bid on or transport RIK oil. She also admitted to having a “one-night stand” with a Shell employee. She said she did not subsequently recuse herself from work involving Shell because she only had a “one-nightstand” with its employee and did not think this would affect RIK business. She stated that this employee did not prepare Shell’s RIK bids.
One MMS employee told us that when she questioned Leyshon about the appropriateness of oil companies paying for RIK employees’ meals, Leyshon responded that this was the ”RIK way of doing business.”
Leyshon told investigators that she ”had a hit every once in a while in reference to her use of marijuana but noted that this never occurred at the MMS office.
When interviewed, Michael Faulise, Director of Marketing for Shell Exploration and Production Company (Shell E&P), stated that he had worked for Shell since 2000 and one of his principle contacts at RIK was Stacy Faulise made the general comment that the main purpose of skiing or golfing events hosted by Shell was entertainment and that business was rarely discussed among the attendees. He further stated that people would never receive business information from him during social events. He said he thought of RIK as a fellow industry partner. When asked, Faulise stated that he was unable to recall Leyshon ever paying for any lodging or meals provided by Shell.
We also interviewed Shell E&P’s manager of crude oil and logistics, Barbara Layer. The interview occurred under a proffer agreement between Layer and DOJ. Layer identified Leyshon as one of the main contacts at RIK and stated that she treated Leyshon and other RIK employees as ”working interest partners” who were often invited to Shell events and meals. She specifically remembered Leyshon attending multiple Shell events at Keystone Ski Resort in Colorado and holiday parties in New Orleans.
With respect to the Keystone event, Layer remembered that Leyshon stayed overnight in the Shell-owned lodge, “Dutchman Haus,” because she had too much to drink. Layer was unable to recall any instance in which Leyshon reciprocated or purchased anything of value for Shell employees.
We interviewed a senior crude oil trader for Shell Oil Trading Company regarding his relationship with Stacy Leyshon pursuant to a DOJ proffer agreement. The senior trader said he had heard Leyshon and Edler referred to by other Shell employees as the “MMS Chicks” who often drank too much and conducted themselves in an unprofessional manner. Because of their reputation, the senior trader claimed that he made the personal decision not to socialize with any RIK employee and that he had never provided an RIK employee with a gift. When told that RIK employees claimed that they had to socialize and take gifts from the industry to do their jobs well, the senior trader said this claim was “absolutely false.”
Pursuant to a DOJ proffer agreement, we interviewed former Shell Trading Company trader Alan Raymond regarding Stacy Leyshon, whom he identified as one of his main RIK contacts.
Raymond said he viewed RIK as ‘just another oil exploration company,” and, therefore, providing RIK employees with gifts and entertainment was “relationship building.” He claimed that his superiors at Shell Trading Company had approved of providing gifts and entertainment to RIK employees.
While assigned to RIK, Edler worked directly for Stacy Leyshon.
Our review of Shell representatives’ expense reports and other documentation disclosed that Edler received approximately 17 gifts between 2002 and 2006. The expense report entries reflected only meals and drinks. Interviews and record reviews disclosed that Edler also attended Shell’s customer appreciation dinners and customer appreciation outings, which were not reflected on Shell’s document production.
Our review of a Hess representative’s expense reports disclosed that Edler was listed on the reports four times between 2002 and 2003. In addition, interviews disclosed that Edler stayed two nights in lodging provided by Hess at a 2003 Shell event in Steamboat Springs, CO. Edler’s stay was not reflected in the Hess expense reports.
In addition, our investigation disclosed that in 2004, Greg Smith became concerned that an RIK employee might have released confidential pipeline transportation rates to Shell. Apparently, a company official from Poseidon Oil had called Smith to complain that Shell had learned of the confidential transportation rate that Poseidon had negotiated with RIK. We also discovered emails sent among RIK Staff where Edler admitted to talking to “Mike” (Faulise) about the Poseidon deal. On May 6, 2004, Smith sent an e-mail to several RIK marketers including Edler that stated, “I have heard the details of our agreement with Poseidon … including the actual rate we agreed to … was communicated to Shell. If true, this ran counter to our promise to Poseidon to keep this information confidential.”
Edler told investigators that she did not document the value of the meals and drinks Shell employees provided her. She said Shell employees always ordered expensive bottles of wine and when she realized how expensive the wine was, she stopped drinking it. Edler claimed that she often reciprocated by buying Shell employees meals and drinks, but she was not able to provide any receipts to substantiate this.
Edler confirmed that she attended the Shell customer appreciation outings in 2002 and 2004.
She said she attended these events in order to meet and get to know industry representatives. She said RIK was dependent on industry personnel to provide it with knowledge to be successful, and the RIK Program was enhanced as a result of RIK employees attending these events.
Edler told investigators that during the 2002’event, she golfed with Shell employees but could not recall who paid her fees. She admitted that Shell also provided lodging for her during the 2002 event. She explained that she had originally planned to stay at a condo she had reserved, but the weather turned bad. Advised that the investigation had disclosed that she spent the night at Shell’s lodge because she had too much to drink, Edler said, “It could have been that, too.
Honestly, I don’t recall the reason. It was a long time ago.”
Edler stated that she did not reimburse Shell for the cost other lodging and instead she and Leyshon provided breakfast for the group during the event. She said that since this breakfast food was valued at a few hundred dollars, this was the equivalent to paying Shell for their lodging.
Edler said that although the MMS Ethics Office did not approve their attendance at this event, Smith did, and he was aware that Edler would be golfing with Shell during the day and spending the night. “Anything that we did, Greg knew and approved,” Edler said. According to Edler, Smith’s approval was verbal and not in writing.
Our investigation revealed that in 2004, Edler attended another Shell appreciation event, which was held during the winter in Keystone, CO, and again Shell provided her lodging. When asked about this event, Edler said she did not want to attend this event, but Smith had ordered her to attend, and she did. According to Edler, Smith knew she would be staying in lodging provided by Shell. She did admit that she went snowboarding and that Shell paid for her equipment rental and a snowboarding lesson.
Edler said she had romantic relationships with two men from the oil industry: One who worked for Shell Pipeline Company and an oil scheduler for Chevron. Edler said her supervisor, Leyshon, knew about both relationships, and Edler did not think there was a reason to recuse herself from dealing with Shell or Chevron. She claimed that she never discussed RIK business with either the Shell employee or the Chevron employee. When asked if she had personal or sexual relationships with anyone else from industry, Edler asked the agents if they had any e- mails or evidence with which to remind her, adding “I did date people.”
We reviewed company records and expense reports for Chevron and Shell Pipeline Company and did not find any gifts or meals purchased for Edler by the Shell Pipeline Company or Chevron. Agent’s Note: DOl-DIG agents attempted to interview both the Shell and Chevron employees. The Chevron employee refused to be interviewed and the Shell employee refused repeated attempts to schedule an interview.
Edler admitted that she had used cocaine “in the past,” most recently in 2005. However, she claimed that she never used cocaine during business hours and that she never used cocaine with any MMS employees or industry representatives.
We interviewed Mike Faulise, Barbara Layer, and Alan Raymond of Shell, who all confirmed that Edler was an RIK employee they dealt with on both a professional and social basis. Both Faulise and Layer remembered her attending the annual Shell outings. During Faulise’s interview, we showed him a February 2004 e-mail he wrote to Edler stating, “Nobody will say anything about you being here for the night. As far as I’m concerned, you were in a hotel.”
Edler responded, “Mikey:..you are sooo wonderful You know how much I totally adore you.”
Faulise said Edler had informed him that Smith did not approve of her staying in Shell-provided lodging. Faulise said he could not recall Edler ever paying for her lodging or meals at Shell- sponsored events.
Faulise also recalled a discussion with Edler where they discussed RIK shipping Poseidon oil on a Poseidon-owned pipeline. Faulise was upset about MMS shipping on this pipeline because Shell had a difficult time shipping its own barrels on the same pipeline. Faulise stated that Edler may have given him the specific rate that RIK gave Poseidon, but he could not recall for certain if she did. However, he did recall complaining about the matter to a Poseidon employee, who then expressed irritation that Edler had talked to Shell about an RIK-Poseidon deal.
Layer opined that Leyshon and Edler “couldn’t have done their job as well” had they not attended industry events. She recalled telling both Edler and Leyshon that “My lips are sealed” when it became known that they were not authorized to accept lodging from Shell.
She specifically remembered seeing Edler at Shell’s holiday parties in New Orleans where all attendees received gifts.
Finally, Layer informed us that she had witnessed Edler making advances on a male industry executive at one of Shell’s holiday parties. [Exemptions 6 & 7(C)]
Denver Post: Sex, drugs alleged in oil deals: 10 September 2008 (Many of the alleged misdeeds occurred when Gale Norton was secretary of the interior. Now a general counsel with Shell in Denver, Norton declined to comment, even when asked to address the portion of the reports dealing with the department she headed.)
Wall Street Journal: Federal Oil Officials Accused In Sex and Drugs Scandal: 11 September 2008 (The report named four companies — Chevron Corp., a U.S. unit of Royal Dutch Shell PLC, Gary-Williams Energy Corp. and Hess Corp. — as gift givers.)